o BT PYRAMID MUTUAL FUNDS o
BT PRESERVATIONPLUS FUND
ANNUAL REPORT
---------------
SEPTEMBER o 1998
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Table of Contents
- --------------------------------------------------------------------------------
Letter to Shareholders 3
BT PreservationPlus Fund
Statement of Assets and Liabilities 6
Statement of Operations 7
Statement of Changes in Net Assets 8
Financial Highlights 9
Notes to Financial Statements 10
Report of Independent Auditors 12
BT PreservationPlus Portfolio
Statement of Net Assets 13
Statement of Operations 15
Statement of Changes in Net Assets 16
Financial Highlights 16
Notes to Financial Statements 17
Report of Independent Auditors 19
---------------
The Fund is not insured by the FDIC and is not a deposit, obligation of or
guaranteed byBankers Trust Company. The Fund is subject to investment risks,
including possible loss of principal amount invested.
---------------
2
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Letter to Shareholders
- --------------------------------------------------------------------------------
We are pleased to present you with this first annual report for the BT
PreservationPlus Fund (the "Fund"), providing a detailed review of the market,
the Portfolio, and our outlook. Included are a complete financial summary of the
Fund's operations and a listing of the Portfolio's holdings. The Fund's
Institutional Class, Institutional Service Class, and Service Class have not
been in operation for a full twelve months. For those classes, performance is
being reported for the life of the Fund as of September 30, 1998.
It is well worth noting that the BT PreservationPlus Fund is the first SEC
registered mutual fund specifically designed as an investment alternative to
traditional GIC commingled funds and other stable value products. The Fund is
open to investors in participant-directed employee benefit plans that meet
certain eligibility criteria, including corporate 401(k), public 457, and
not-for-profit 403(b) plans. As of September 30, 1998, the Fund had more than
$232 million in total assets across all classes of shares.
MARKET ACTIVITY
During the twelve months ending September 30, 1998, the U.S. bond market
rallied, continuing the bullish trend in place since early 1997 and trading up
even further as investors sought a haven of safety from global economic turmoil.
The low inflation trend has been exceptionally supportive of lower bond yields
for the past two years, aided by declining commodity prices, modest wage growth,
strong productivity gains, and a vigilant central bank.
U.S. Treasuries were the primary beneficiaries of the high-volume flight to
quality, while the global financial crisis caused yield spreads in the
corporate, mortgage, and asset-backed sectors to widen significantly over the
year. Specifically, over the twelve months, the 2-year Treasury bond yield
dropped 1.51% to 4.27%. The 5-year Treasury bond yield rallied even more,
dropping 1.76% to 4.22%. This movement helped to invert the
short-to-intermediate portion of the yield curve, narrowing the 2 to 5 year
spread from 0.21% at September 30, 1997 to -0.05% on September 30, 1998.
Overall, the yield curve flattened, as several factors impacted U.S. bond
markets.
o From October 1997 to January 1998, many Asian countries were forced to
sell short-term U.S. debt to defend their currencies. The mortgage and
corporate sector yield spreads widened, suffering from fears of a
refinancing wave and global overcapacity, respectively.
o During the first calendar quarter of 1998, the U.S. bond market traded in a
broad range, primarily due to diminishing fears about the impact of the Asian
crisis on the U.S. economy. Shifts in market perception led to the mortgage
and corporate sectors outperforming Treasuries for the quarter.
Disinflationary pressures affected the longer end of the curve, while the
shorter end remained anchored by a Fed Funds target rate of 5.50%.
o In the second half of the fiscal year, yield spreads on corporate and
asset-backed securities continued to widen with investor concerns about the
negative domestic credit implications of the financial crisis in foreign
markets. The mortgage-backed sector also lagged duration-matched Treasuries,
as the expectation of high prepayments was renewed. Treasuries rallied further
on a global financial crisis now further solidified by:
-- Russia's default on debt payments and devaluation of the ruble, despite an
International Monetary Fund bailout attempt,
-- a large and highly leveraged hedge fund that required a Federally
orchestrated bailout, and
-- the economy and banking systems of Japan as well as those of significant
emerging markets continuing to flounder without foreseeable resolution.
o The September 29, 1998 easing of the Fed Funds rate to 5.25% by the Federal
Reserve Board was not well-embraced by investors, who perceived the 0.25% cut
as insufficient for boosting U.S. economic growth.
INVESTMENT REVIEW
The Fund has had a successful initial fiscal year, and we believe the Fund is
well positioned for a high level of current income over the long term. The Fund
has met its objective of maintaining a stable value per share, with its NAV
staying steady at $10 per share every day since inception. It should be noted
that the Service Class has only been in operation since September 23, 1998.
- ---------------------------------------------------------------------------
Periods ended September 30, 1998 Cumulative Total Returns
Past 3 Past 6 Past 9 Since
months months months inception
- ---------------------------------------------------------------------------
BT PreservationPlus
Fund Investment Class
Shares(1) (inception 10/1/97) 1.42% 2.84% 4.27% 5.77%
- ---------------------------------------------------------------------------
Lehman 1-3 Year Government/
Corporate Index(2) 2.99 6.10 7.87 7.87(3)
- ---------------------------------------------------------------------------
Ryan Labs 5 Year GIC Index(2) 1.51 3.05 4.62 6.25(3)
- ---------------------------------------------------------------------------
IBC's First Tier Money
Market Universe(2) 1.24 2.49 3.75 5.06(3)
- ---------------------------------------------------------------------------
BT PreservationPlus Fund
Institutional Class Shares(1)
(inception 12/14/97) 1.45% 2.92% 4.39% 4.67%
- ---------------------------------------------------------------------------
Lehman 1-3 Year Government/
Corporate Index(2) 2.99 6.10 -- 4.60(3)
- ---------------------------------------------------------------------------
Ryan Labs 5 Year GIC Index(2) 1.51 3.05 -- 4.93(3)
- ---------------------------------------------------------------------------
IBC's First Tier Money
Market Universe(2) 1.24 2.49 -- 3.75(3)
- ---------------------------------------------------------------------------
BT PreservationPlus Fund
Institutional Service Class
Shares(1) (inception 4/1/98) 1.42% -- -- 2.82%
- ---------------------------------------------------------------------------
Lehman 1-3 Year Government/
Corporate Index(2) 2.99 -- -- 6.10(3)
- ---------------------------------------------------------------------------
Ryan Labs 5 Year GIC Index(2) 1.51 -- -- 3.05(3)
- ---------------------------------------------------------------------------
IBC's First Tier Money
Market Universe(2) 1.24 -- -- 2.49(3)
- ---------------------------------------------------------------------------
BT PreservationPlus Fund
Service Class Shares(1)
(inception 9/23/98) -- -- -- .1%
- ---------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Letter to Shareholders
- --------------------------------------------------------------------------------
Diversification of Portfolio Investments
By Theme as of September 30, 1998
(percentages are based on market value)
[Pie Chart Appears Here - See Plot Points Below]
Mortgage Backed 25%
Foreign Debt 1%
Utility 2%
Industrial 9%
U.S.Treasury 7%
Money Market Mutual Fund 15%
Short-Term U.S. Government 15%
Financial Services 26%
The Fund is diversified across the major sectors of the investment grade fixed
income market. As of September 30, 1998, the Portfolio is allocated 26% to
corporate bonds, 25% to mortgage-backed securities, 12% to asset-backed
securities, 22% to U.S. Treasuries, 15% to cash equivalents. This allocation of
fixed income securities is intentionally weighted towards the corporate, asset
backed and mortgage sectors, as these sectors have historically offered a higher
yield than U.S. government securities. Additionally, the Fund has entered into
Wrapper Agreements that are intended to stabilize the per share net asset value
of the Fund.
The Fund is the first SEC registered mutual fund to make use of Wrapper
Agreements to seek to maintain principal stability in the face of fluctuations
in values due to changes in yields. To date, we have entered the Portfolio into
four Wrapper Agreements, each of which covers approximately one quarter of the
fixed income securities in the Portfolio covered by such Agreements. Generally
speaking, Wrapper Agreements are issued by insurance companies, banks and other
financial institutions. The Wrapper Agreements held by the Portfolio as of
September 30, 1998 are issued by Bank of America NT&SA, National Westminster
Bank PLC, Credit Suisse Financial Products, and Transamerica Life Insurance &
Annuity Co. This has been a successful strategy for the Fund.(1)
The Fund has maintained a high quality portfolio. The average credit quality of
the investments in the Fund at the end of the annual period was AA+, as measured
by Standard & Poor's. The average quality of the issuers of the Wrapper
Agreements at that time was AA, as measured by Standard & Poor's. The Fund's
duration at September 30, 1998 stood at 2.5 years.
MANAGER OUTLOOK
For the near term, we anticipate that bond market investors will continue to
seek refuge from the global financial crisis in the government bond markets of
the advanced economies. Further, absent signs that the global turmoil is
receding, yield spreads in the corporate, mortgage, and asset-backed sectors are
likely to remain wide under credit considerations. We believe that these
conditions should present us with attractive opportunities to invest new cash
flows at higher yield spreads.
We expect that the recessionary pressures building from the influence of the
global financial crisis will cause the yield curve to revert back to a "normal"
shape, as the Federal Reserve Board considers a further easing of interest
rates. In fact, we believe the fixed income market is already discounting
further moves by the Fed. We further believe that economic growth will remain
slow but respectable within a 1%-2% GDP range. Given this scenario, we expect
corporate, mortgage, and asset-backed sector spreads to remain in a relatively
tight trading range.
We will maintain our long-term perspective for the Fund, monitoring economic
conditions and how they affect the financial markets, as we seek to provide a
high level of current income while seeking to maintain a stable value per share.
We value your support of the PreservationPlus Fund and look forward to serving
your investment needs in the years ahead.
/s/ Eric Kirsch
___________________
/s/ Louis R. D'Arienzo /s/ John Axtell
_______________________________________________
Eric Kirsch, Louis R. D'Arienzo and John Axtell
Portfolio Managers of the
PreservationPlus Portfolio
September 30, 1998
- ----------
(1) Performance quoted represents past performance. Investment return and
principal value may fluctuate, so that an investor's shares, when redeemed,
may be worth more or less than their original cost.
The Fund seeks to maintain a constant $10.00 per share net asset value,
although there can be no assurance that it will be able to do so. The Fund
is not a money market fund. The Fund will hold fixed income securities,
money market instruments, futures, options, and other instruments, and
contracts with financial institutions, such as insurance companies and banks
that are intended to stabilize the value per share. The Fund is not insured
by the FDIC and is not a deposit, obligation of, or guaranteed by Bankers
Trust Company. The Fund is subject to investment risks, including possible
loss of principal amount invested.
(2) In our March Shareholder Letter, we stated that we were considering an
alternative benchmark to the IBC Money Fund Averages. We have selected two
alternative benchmarks. The Lehman 1 to 3 year Government/Corporate Index,
our primary benchmark, is a total return index consisting of all US
Government agency securities, US Government treasury securities, and all
investment grade corporate debt securities with maturities of one to three
years. We also compare our performance to the Ryan Labs 5 Year GIC Index, a
custom index consisting of an arithmetic mean of 5 year GIC contract rates,
assuming each contract is held to full term. This index more closely
reflects the market sector in which the Fund invests.
(3) The benchmarks for the Life of Fund time period are calculated from
September 30, 1997 for the Investment Class, from December 31, 1997 for the
Institutional Class comparison, and from March 31, 1998 for the
Institutional Service Class comparison.
4
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Performance Comparison
- --------------------------------------------------------------------------------
Comparison of Change in
Value of a $10,000 Investment
in the BT PreservationPlus
Fund, Investment Class and
Institutional Class.
BT PreservationPlus Fund Investment Class - $10,576
Lehman 1-3 Year Government/Corporate Index - $10,787
IBC First Tier Money Market Universe - $10,506
Ryan Labs 5 Year GIC Index - $10,625
[Graph Appears Here - See Plot Points Below]
BT Lehman IBC
PreservationPlus 1-3 Year First Tier Ryan Labs
Fund Investment Government/Corporate Money Market 5 Year GIC
Class Index Universe Index
Oct-97 10,000 10,000 10,000 10,000
Mar-98 10,284 10,313 10,251 10,250
Sep-98 10,576 10,787 10,506 10,625
Past performance is not indicative of future performance. The above graph
represents performance information of Investment Class Shares (the sole class
of shares prior to the other classes). Performance of the other classes will
vary based on differences in fees and expenses paid by shareholders investing
in the different classes.
- -------------------------------------------------------------------------------
Total Return for the Period Ended September 30, 1998
Inception Date Total Return
Investment Class 10/1/97 5.76%
Institutional Class 12/14/97 4.67%
Institutional Service Class 4/1/98 2.82%
Service Class 9/23/98 .10%
Investment return and principal value may fluctuate so that shares, when
redeemed, may be worth more or less than their original cost. Returns for less
than 1 year are not annualized.
- -------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Statement of Assets and Liabilities September 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Assets
Investment in PreservationPlus Portfolio, at Value $232,551,276
Receivable for Shares of Beneficial Interest Subscribed 1,299,933
Prepaid Expenses and Other 83,126
Due from Bankers Trust, net 145,992
------------
Total Assets 234,080,327
------------
Liabilities
Payable for Shares of Beneficial Interest Redeemed 213,768
Dividend Payable 1,036,203
Accrued Expenses and Other 93,175
------------
Total Liabilities 1,343,146
------------
Net Assets $232,737,181
============
Composition of Net Assets
Paid-in Capital $232,737,181
Net Unrealized Appreciation on Investment 3,951,992
Accumulated Net Realized Gain on Investment 991,886
Unrealized Depreciation on Wrapper Agreements (4,943,878)
------------
Net Assets $232,737,181
============
Net Asset Value, Offering and Redemption Price Per Share (net assets divided by shares outstanding)
Shares Outstanding:
Investment Class Shares(1) $ 10.00
Institutional Class Shares(2) $ 10.00
Institutional Service Class Shares(3) $ 10.00
Service Class Shares(4) $ 10.00
</TABLE>
- ----------
(1) Net asset value, offering and redemption price per share (based on net
assets of $15,003,333 and 1,500,333 shares of beneficial interest
outstanding; $.001 par value, unlimited number of shares of beneficial
interest authorized)
(2) Net asset value, offering and redemption price per share (based on net
assets of $162,192,860 and 16,219,286 shares of beneficial interest
outstanding; $.001 par value, unlimited number of shares of beneficial
interest authorized)
(3) Net asset value, offering and redemption price per share (based on net
assets of $55,136,558 and 5,513,656 shares of beneficial interest
outstanding; $.001 par value, unlimited number of shares of beneficial
interest authorized)
(4) Net asset value, offering and redemption price per share (based on net
assets of $404,430 and 40,443 shares of beneficial interest outstanding;
$.001 par value, unlimited number of shares of beneficial interest
authorized)
See Notes to Financial Statements on Pages 10 and 11
6
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Statement of Operations For the year ended September 30, 1998*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Income net of expenses allocated from PreservationPlus Portfolio $ 7,494,602
-----------
Expenses
Administration and Service Fees - Investment Class 23,442
Administration and Service Fees - Institutional Class 211,798
Administration and Service Fees - Institutional Service Class 20,080
Administration and Service Fees - Service Class 19
Shareholder Service Fee - Institutional Service Class 30,897
Shareholder Service Fee - Service Class 19
Registration Fees 100,843
Insurance Expense 3,763
Printing and Shareholder Reports 48,539
Trustees Fees 8,814
Professional Fees 31,147
Miscellaneous Fees 3,016
Organization Expenses 9,446
-----------
Total Expenses 491,823
Less: Expenses Absorbed by Bankers Trust (exclusive of portfolio waivers)
Investment Class (30,341)
Institutional Class (308,573)
Institutional Service Class (40,029)
Service Class (19)
-----------
Net Expenses 112,861
-----------
Net Investment Income 7,381,741
-----------
Unrealized Appreciation (Depreciation) on:
Investment 3,951,992
Wrapper Agreements (4,943,878)
Realized Gain from Investment Transactions 991,886
-----------
Net Realized and Unrealized Gain (Loss) on Investments and Wrapper Agreements --
-----------
Net Increase in Net Assets from Operations $ 7,381,741
===========
</TABLE>
- ----------
* The Investment, Institutional, Service and Institutional Service Classes
commenced operations on October 1, 1997, December 14, 1997, September 23, 1998
and April 1, 1998, respectively.
See Notes to Financial Statements on Pages 10 and 11
7
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the year ended
September 30, 1998*
-------------------
<S> <C>
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 7,381,741
Net Unrealized Appreciation on Investment 3,951,992
Net Unrealized Depreciation on Wrapper Agreements (4,943,878)
Net Realized Gain from Investment Transactions 991,886
------------
Net Increase in Net Assets from Operations 7,381,741
------------
Distributions to Shareholders
Net Investment Income
Investment Class (528,312)
Institutional Class (5,716,544)
Institutional Service Class (1,136,465)
Service Class (420)
------------
Total Distributions (7,381,741)
------------
Capital Transactions in Shares of Beneficial Interest
Net Increase Resulting from Investment Class Shares 15,003,333
Net Increase Resulting from Institutional Class Shares 162,192,860
Net Increase Resulting from Institutional Service Class Shares 55,136,558
Net Increase Resulting from Service Class Shares 404,430
------------
Net Increase from Capital Transactions in Shares of Beneficial Interest 232,737,181
------------
Total Increase in Net Assets 232,737,181
Net Assets
Beginning of Year --
------------
End of Year $232,737,181
============
</TABLE>
- ----------
* The Investment, Institutional, Service and Institutional Service shares
commenced operations on October 1, 1997, December 14, 1997, September 23, 1998
and April 1, 1998, respectively.
See Notes to Financial Statements on Pages 10 and 11
8
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Financial Highlights
- --------------------------------------------------------------------------------
Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for the periods
indicated.
<TABLE>
<CAPTION>
Investment Class Shares Institutional Class Shares
------------------------ --------------------------
For the period For the period
October 1, 1997* through December 14, 1997* through
September 30, 1998 September 30, 1998
------------------------ --------------------------
<S> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.00 $ 10.00
------ -------
Income from Investment Operations
Net Investment Income 0.56 0.46
Distributions to Shareholders
Net Investment Income (0.56) (0.46)
------ -------
Net Asset Value, End of Period $10.00 $ 10.00
====== =======
Total Investment Return 5.76% 5.91%**
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $15,003 $162,193
Ratios to Average Net Assets:***
Net Investment Income 5.65% 5.79%**
Net Expenses, Including Expenses of the
PreservationPlus Portfolio 0.55% 0.40%**
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.51% 0.50%**
</TABLE>
<TABLE>
<CAPTION>
Institutional Service Service
Class Shares Class Shares
----------------------- ---------------------------
For the period For the period
April 1, 1998* through September 23, 1998* through
September 30, 1998 September 30, 1998
----------------------- ---------------------------
<S> <C> <C>
Per Share Operating Performance:
Net Asset Value, Beginning of Period $10.00 $10.00
------ ------
Income from Investment Operations
Net Investment Income 0.28 0.01
Distributions to Shareholders
Net Investment Income (0.28) (0.01)
------ ------
Net Asset Value, End of Period $10.00 $10.00
====== ======
Total Investment Return 5.78%** 5.42%**
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $55,137 $ 404
Ratios to Average Net Assets:***
Net Investment Income 5.66%** 5.42%**
Net Expenses, Including Expenses of the
PreservationPlus Portfolio 0.55%** 0.80%**
Decrease Reflected in Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.39%** 0.43%**
</TABLE>
- ----------
* Commencement of operations
** Annualized
*** Includes Fund share of Portfolio expenses
See Notes to Financial Statements on Pages 10 and 11
9
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1--Organization and Significant Accounting Policies
A. Organization
BT Pyramid Mutual Funds (the "Trust") is registered under the Investment Company
Act of 1940 (the "Act"), as amended, as an open-end management investment
company. The Trust was organized on February 28, 1992, as a business trust under
the laws of the Commonwealth of Massachusetts. The PreservationPlus Fund (the
"Fund") is one of the Funds offered to investors by the Trust.
The Preservation Plus Fund offers four classes of shares to investors;
Investment Class, Institutional Class, Service Class and Institutional Service
Class shares (the "Classes"). All classes of shares have identical rights to
earnings, assets and voting privileges, except that each class has certain
expenses directly attributable to that particular class and exclusive voting
rights with respect to matters affecting a single class.
The Investment, Institutional, Service, and Institutional Service Classes
commenced operations and began offering shares of beneficial interest on October
1, 1997, December 14, 1997, September 23, 1998 and April 1, 1998, respectively.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the PreservationPlus Portfolio (the "Portfolio"). The
Portfolio is an open-end management investment company registered under the Act.
The value of such investment in the Portfolio reflects the Fund's proportionate
interest in the net assets of the Portfolio. At September 30, 1998, the Fund's
investment was approximately 100% of the Portfolio.
The financial statements of the Portfolio, including the Statement of Net
Assets, are contained elsewhere in this report and should be read in conjunction
with the Fund's financial statements.
B. Security Transactions and Related Investment Income
Security transactions are accounted for on the trade date. Realized gains and
losses on investments sold are computed on the basis of identified cost. The
realized and unrealized gains and losses in the Statement of Operations
represent the results related to the Fund's underlying assets and the offsetting
valuation change of the Wrapper Agreements.
The Fund earns income, net of expenses, on its investment in the Portfolio. All
of the net investment income and net realized and unrealized gains and losses
(including Wrapper Agreements) of the Portfolio are allocated pro rata among the
investors in the Portfolio on a daily basis.
C. Distributions
It is the Fund's policy to declare dividends daily and distribute dividends
monthly to shareholders from net investment income. Dividends payable to
shareholders are recorded by the Fund on the ex-dividend date. Distributions of
net realized short-term and long-term capital gains, if any, will be made
annually.
D. Federal Income Taxes
It is the Fund's policy to comply with the requirements of the Internal Revenue
Code and distribute income to shareholders. Therefore, no federal income tax
provision is required. The Fund may periodically make reclassifications among
certain of its capital accounts as a result of differences in the
characterization and allocation of certain income and capital gains determined
annually in accordance with federal tax regulations which may differ from
generally accepted accounting principles.
E. Other
The Trust accounts separately for the assets, liabilities and operations of the
Fund. Expenses directly attributable to the Fund are charged to that Fund, while
expenses that are attributable to the Trust are allocated among the Funds in the
Trust.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Note 2--Fees and Transactions with Affiliates
The Fund has entered into an Administration and Services Agreement with Bankers
Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, transfer agency and
shareholder services to the Fund in return for a fee computed daily and paid
monthly at an annual rate of 0.25% of average daily net assets for the
Investment and Service classes and 0.10% of average daily net assets for the
Institutional and Institutional Service classes. Prior toAugust 5, 1998, the
Administration and Service Fee for the Institutional and Institutional Service
Classes was 0.25% of average daily net assets.
The Service and Institutional Service Classes are also subject to shareholder
servicing fees in the maximum amount of 0.25% and 0.15% of average daily net
assets, respectively.
The Trust has entered into a distribution agreement with ICC Distributors, Inc.
("ICC") under which ICC will serve as distributor for shares sold on behalf of
the Fund.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of each Class, to the extent necessary to limit all expenses as
follows: Investment Class of Shares to 0.20% of the average daily net assets of
the Class, excluding expenses of the Portfolio and 0.55% of the average daily
net assets of the Class, including expenses of the Portfolio; Service Class of
Shares to 0.45% of the average daily net assets of the Class, excluding expenses
of the Portfolio and 0.80% of the average daily net assets of the Class,
including expenses of the Portfolio; Institutional Class of Shares to 0.05% of
the average daily net assets of the Class, excluding expenses of the Portfolio
and 0.40% of the average daily net assets of the Class, including expenses of
the Portfolio; and Institutional Service Class to 0.20% of the average daily net
assets of the Class, excluding expenses of the Portfolio and 0.55% of the
average daily net assets of the Class, including expenses of the Portfolio.
The Fund is a participant with other affiliated entities in a revolving credit
facility (the "revolver") and a discretionary demand line of credit facility
collectively (the "credit facilities") in the amounts of $50,000,000 and
$100,000,000, respectively. A commitment fee of .07% per annum on the average
daily amount of the available commitment is payable on a quarterly basis and
apportioned equally among all participants. Amounts borrowed under the credit
facilities will bear interest at a rate per annum equal to the Federal Funds
Rate plus .45%. No amounts were drawn down or outstanding under the credit
facilities as of and for the year ended September 30, 1998.
10
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 3--Shares of Beneficial Interest
At September 30, 1998, there were an unlimited number of shares of beneficial
interest authorized. Transactions in shares of beneficial interest for the
fiscal periods ended September 30, 1998 were as follows:
<TABLE>
<CAPTION>
Institutional Institutional Service
Investment Class Shares* Class Shares* Class Shares* Service Class Shares*
------------------------- ------------------------- ------------------------ ---------------------
Shares Amount Shares Amount Shares Amount Shares Amount
---------- ------------ ---------- ------------ ---------- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sold 3,085,270 $ 30,852,705 18,237,037 $182,370,372 6,774,020 $ 67,740,195 40,443 $404,430
Reinvested 44,831 448,308 496,228 4,962,280 91,836 918,362 0 0
Redeemed (1,629,768) (16,297,680) (2,513,979) (25,139,792) (1,352,200) (13,521,999) 0 0
---------- ------------ ---------- ------------ ---------- ------------ ------ --------
1,500,333 $ 15,003,333 16,219,286 $162,192,860 5,513,656 $ 55,136,558 40,443 $404,430
========== ============ ========== ============ ========== ============ ====== ========
</TABLE>
- ----------
* The Investment, Institutional, Service and Institutional Service Classes
commenced operations on October 1, 1997, December 14, 1997, September 23, 1998
and April 1, 1998, respectively.
11
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Fund
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
BT Pyramid Mutual Funds - BT PreservationPlus Fund
We have audited the accompanying statement of assets and liabilities of BT
PreservationPlus Fund (the "Fund") as of September 30, 1998, and the related
statements of operations and changes in net assets for the year then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of BT
PreservationPlus Fund at September 30, 1998, the results of its operations and
changes in its net assets for the year then ended, and the financial highlights
for each of the periods indicated therein, in conformity with generally accepted
accounting principles.
Ernst & Young, LLP
Philadelphia, Pennsylvania
October 30, 1998
12
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Portfolio
Statement of Net Assets September 30, 1998
- --------------------------------------------------------------------------------
Principal
Amount Security Value
------ -------- -----
CORPORATE DEBT
NON-CONVERTIBLE - 47.59%
Financial Services - 33.08%
$ 1,000,000 ABN AMRO Boan NV, 7.55%,
6/28/06 $ 1,099,455
1,000,000 ACCMT 1996-A, 6.00%, 11/15/05 1,033,766
2,000,000 American Express Master Trust-CI.
A, 7.60%, 8/15/02 2,127,690
1,000,000 American General Finance,
5.90%, 1/15/03 1,021,515
1,000,000 AMXMT 98-1 A, 5.90%, 4/15/04 1,029,375
1,000,000 Associates Corp., 9.125%, 4/1/00 1,053,764
1,500,000 Associates Corp., 6.68%, 9/17/99 1,517,853
2,000,000 AT&T Universal Card Master,
5.95%, 10/17/02 2,037,050
300,000 BankAmerica Co., 7.50%, 10/15/02 321,870
2,000,000 California Infrastructure PG&E-CI.
A7, 6.420%, 9/25/08 2,055,090
2,000,000 CCIMT 98-6 A, 5.85%, 4/10/03 2,049,770
1,000,000 CNA Financial, 6.45%, 1/15/08 1,026,405
1,500,000 CHAMT 98-3 A, 6.00%, 4/15/03 1,547,813
1,000,000 Chase Credit Card Master Trust-CI.
A7, 6.30%, 4/15/03 1,023,345
100,000 Chase Manhattan Corp., 10.0%,
6/15/99 102,963
2,000,000 Chase Manhattan Corp., 7.25%,
6/1/07 2,169,020
2,300,000 Chase Manhattan Credit Card Master
Trust-CI. A, 6.73%, 2/15/03 2,324,944
1,000,000 Citibank Credit Card Master Trust-CI.
A, 5.75%, 1/15/03 1,036,235
2,000,000 DHMT 1998-1 A, 5.90%, 5/25/06 2,063,750
2,000,000 Discover Card Master Trust-CI.
A, 5.80%, 9/16/03 2,029,360
2,000,000 Discover Card Master Trust-CI. A,
6.20%, 5/16/06 2,124,402
1,000,000 EQCC Home Equity Loan Turst-CI.
A5, 6.54%, 4/15/11 1,022,205
2,000,000 First Bank Corporation, 6.40%,
2/15/03 2,075,492
300,000 First Union National Bank, 7.125%,
10/15/06 329,516
5,000,000 First USA Credit Card Master Trust-CI.
A, 6.42%, 3/17/05 5,223,210
3,000,000 Ford Credit Auto Loan Master Trust-CI.
A, 6.50%, 8/15/02 3,076,905
2,000,000 Ford Motor Credit, 6.0%, 1/14/03 2,061,800
1,000,000 GMAC, 7.125%, 5/1/03 1,071,593
1,300,000 GMAC, 6.875%, 7/15/01 1,353,018
1,000,000 GMAC, 6.75%, 3/15/03 1,056,639
1,000,000 Household Finance Co., 8.375%,
11/15/01 1,085,345
1,000,000 J.P. Morgan & Co., 6.70%, 11/1/07 1,053,145
2,000,000 MBNA Master Credit Card Trust-CI.
A, 6.55%, 1/15/07 2,138,582
1,000,000 MBNA Master Credit Card Trust-CI.
A, 6.60%,1/15/03 1,029,990
Principal
Amount Security Value
------ -------- -----
$ 1,000,000 Mellon Financial, 6.375%, 2/15/10 $ 1,041,136
1,000,000 Merrill Lynch, 6.00%, 2/12/03 1,022,587
1,250,000 Morgan Stanley Group,
6.875%, 3/1/07 1,313,395
1,000,000 NationsBank, 5.75%, 3/15/01 1,009,346
3,000,000 NationsBank Credit Card Master Trust-
CI. A, 6.00%, 12/15/05 3,128,022
1,000,000 Norwest Corp., 8.15%, 11/1/01 1,083,195
2,000,000 Premier Auto Trust-CI. A, 5.96%,
10/8/02 2,041,250
750,000 Premier Auto Trust-CI. A, 5.82%,
12/6/02 762,656
1,000,000 Providian Master Trust-CI. A4, 6.25%,
6/15/07 1,044,649
2,000,000 Rockwell International, 6.15%,
1/15/08 2,119,054
2,000,000 Salomon Smith Barney Holdings,
7.98%, 3/1/00 2,070,730
1,000,000 SCAMT 98-1 A, 5.80%, 8/15/05 1,013,750
1,000,000 SCAMT 1995-5 A, 6.05%, 1/16/08 1,030,313
2,700,000 Standard Credit Card Trust, 5.95%,
10/7/04 2,799,201
2,000,000 Toyota Auto Lease Trust-CI. A2,
6.35%, 9/25/00 2,081,180
------------
76,933,339
------------
Industrial - 11.80%
1,000,000 Abbot Labs, 6.40%, 12/1/06 1,091,290
2,000,000 American Home Products, 7.70%,
2/15/00 2,071,634
2,000,000 Anheuser Busch, 9.00%, 12/1/09 2,604,180
1,000,000 BP America, Inc., 7.875%, 5/15/02 1,097,867
1,000,000 Dillards Dept. Store, 7.15%,
9/1/02 1,055,115
2,000,000 DuPont, 9.15%, 4/15/00 2,122,636
1,565,000 Exxon Capital Corp., 6.50%,
7/15/99 1,579,044
1,000,000 GTE Southwest, Inc., 6.23%,
1/1/07 1,067,995
2,000,000 Hanson Overseas, 6.75%, 9/15/05 2,132,060
750,000 Mattel Inc., 6.125%, 7/15/05 781,823
2,000,000 McDonald's Corporation, 6.50%,
8/1/07 2,131,688
500,000 Sears Roebuck Acceptance,
6.125%, 1/15/06 514,237
2,000,000 Sears Roebuck Bond, 7.0%,
6/15/07 2,164,348
1,000,000 Sony Corporation, 6.125%,
3/4/03 1,029,565
1,000,000 TRW, 6.05%, 1/15/05 1,052,955
1,500,000 Texaco Capital, 8.50%, 2/15/03 1,702,890
1,890,000 Wal-Mart Stores, Inc., 9.10%,
7/15/00 2,026,154
100,000 Wal-Mart Stores, Inc., 6.50%,
6/1/03 106,890
1,000,000 Walt Disney, Co., 6.75%, 3/30/06 1,101,895
------------
27,434,266
------------
See Notes to Financial Statements on Pages 17 and 18
13
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Portfolio
Statement of Net Assets September 30, 1998
- --------------------------------------------------------------------------------
Principal
Amount Security Value
------ -------- -----
Utility - 2.71%
$ 1,000,000 Central & South, 7.25%, 10/1/04 $ 1,098,890
800,000 Ches & Pot. Telephone, 7.125%,
1/15/02 853,752
2,000,000 Consolidated Natural Gas, 6.625%,
12/1/08 2,167,120
1,000,000 Virginia Electric & Power, 6.75%,
2/1/07 1,065,930
1,000,000 Wisconsin Electric & Power, 7.25%,
8/1/04 1,105,951
------------
6,291,643
------------
Total Corporate Debt Non-Convertible
(Cost $107,601,188) 110,659,248
------------
FOREIGN DEBT - 1.14%
1,000,000 Alberta Province, 9.25%, 4/1/00 1,058,525
1,000,000 Province of Ontario, 6.00%,
2/21/06 1,046,390
500,000 Province of Quebec, 7.00%,
1/30/07 548,520
------------
Total Foreign Debt (Cost $2,581,405) 2,653,435
------------
Mortgage Backed Securities - 31.68%
1,000,000 FHLMC TBA, 7.50%, 5/1/07 1,031,250
1,000,000 FHLMC TBA, 6.0%, 04/1/08 1,011,875
2,000,000 FHLMC TBA, 6.0%, 11/1/08 2,055,626
2,000,000 FHLMC TBA, 6.50%, 11/1/08 2,044,376
4,000,000 FHLMC TBA, 7.50%, 5/1/22 4,120,626
3,000,000 FHLMC TBA, 6.50%, 11/1/23 3,049,689
4,000,000 FHLMC, 7.0%, 3/1/23 4,101,252
2,000,000 FHLMC TBA, 6.0%, 11/1/24 1,997,500
179,771 FHLMC Gold D79, 7.50%, 4/1/27 185,333
442,419 FHLMC Gold C00, 7.50%, 6/1/27 456,107
98,944 FHLMC Gold D83, 7.50%, 10/1/27 102,005
1,000,000 FNMA, 7.50%, 9/1/06 1,030,625
2,000,000 FNMA TBA, 7.0%, 9/1/06 2,052,501
2,000,000 FNMA TBA, 6.5%, 11/1/07 2,038,750
2,000,000 FNMA TBA, 6.0%, 4/1/08 2,021,250
424,048 FNMA, 7.00%, 9/1/12 435,578
2,849,465 FNMA, 8.00%, 5/1/17 2,960,774
479,986 FNMA, 8.50%, 1/1/20 500,986
7,000,000 FNMA TBA, 7.00%, 9/1/21 7,188,125
4,000,000 FNMA, 7.50%, 9/1/21 4,122,500
2,088,787 FNMA, 8.00%, 12/1/21 2,170,381
1,000,000 FNMA, 6.50%, 4/1/23 1,021,563
4,500,000 FNMA, 6.50%, 4/1/23 4,575,938
1,000,000 FNMA, 6.00%, 9/02/23 997,500
616,955 FNMA, 8.00%, 12/1/23 641,056
469,839 FNMA, 8.50%, 8/1/25 490,395
977,114 FNMA, 6.50%, 10/1/27 994,214
1,000,000 GNMA TBA, 6.50%, 5/1/08 1,026,250
695,861 GNMA 9.00%, 11/15/20 748,698
1,000,000 GNMA TBA, 8.50%, 4/1/21 1,056,875
Principal
Amount Security Value
------ -------- -----
$ 2,000,000 GNMA TBA, 8.00%, 8/1/21 $ 2,085,626
6,000,000 GNMA TBA, 7.00%, 9/1/21 6,181,250
2,000,000 GNMA TBA, 7.50%, 9/1/21 2,070,626
3,000,000 GNMA TBA, 7.50%, 9/1/21 3,110,625
894,151 GNMA 8.00%, 5/15/22 932,434
3,000,000 GNMA TBA, 6.50%, 06/25/23 3,064,375
------------
Total Mortgage Backed Securities
(Cost $73,448,747) 73,674,534
------------
U.S. TREASURY SECURITIES - 8.75%
1,750,000 U.S Treasury Note, 6.50%, 5/15/05 1,961,096
1,000,000 U.S. Treasury Note, 6.25%, 2/28/02 1,059,686
11,400,000 U.S. Treasury Note, 5.75%, 11/15/00 11,713,457
2,800,000 U.S. Treasury Note, 5.50%, 2/28/03 2,930,387
2,550,000 U.S. Treasury Note, 5.25%, 8/15/03 2,664,159
------------
Total U.S. Treasury Securities
(Cost $19,774,325) 20,328,785
------------
SHORT TERM INSTRUMENTS - 39.24%
Mutual Fund - 19.63%
45,648,196 BT Institutional Cash Management
Fund 45,648,196
------------
U.S. Government - 19.61%
41,000,000 U.S. Treasury Bill, 4.74%, 12/17/98 40,634,314
5,000,000 U.S. Treasury Bill, 4.98%, 10/15/98 4,990,521
------------
45,624,835
------------
Total Short Term Instruments
(Cost $91,231,376) 91,273,031
------------
Total Investments
(Cost $294,637,041) 128.40% 298,589,033
------------
Wrapper Agreements* - (1.89)%
National Westminister Bank PLC (1,106,036)
Bank of America NT&SA (1,106,036)
Credit Suisse Financial Products (1,098,884)
Transamerica Life Insurance & Annuity Co. (1,088,084)
------------
(4,399,040)
------------
Liabilities in Excess of
Other Assets (26.51)% (61,638,612)
------- ------------
Net Assets 100.00% $232,551,381
======= ============
- ----------
The following abbreviations are used in portfolio descriptions:
FHLMC - Federal Home Loan Mortgage Corp.
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
TBA - To be announced securities. TBA's represent firm commitments of the
Portfolio for securities authorized for issuance but not yet actually issued.
*Wrapper Agreements - Each Wrapper Agreement obligates the wrapper provider
to maintain the book value of a portion of the Portfolio's assets up to a
specified maximum dollar amount, upon the occurrence of certain specified
events.
See Notes to Financial Statements on Pages 17 and 18
14
<PAGE>
- --------------------------------------------------------------------------------
BT PreservationPlus Portfolio
Statement of Operations For the year ended September 30, 1998*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Investment Income
Interest Income $ 7,385,026
Credited Rate Interest 544,838
-----------
Total Investment Income 7,929,864
-----------
Expenses
Advisory Fees 435,257
Wrapper Fees 151,970
Administration and Service Fees 64,560
Professional Fees 23,959
Trustees Fees 3,415
Misellaneous Fees 494
-----------
Total Expenses 679,655
Less Expenses Absorbed by Bankers Trust (244,398)
-----------
Net Expenses 435,257
-----------
Net Investment Income 7,494,607
-----------
Net Realized and Unrealized Gain (Loss) on Investments and Wrapper Agreements
Unrealized Appreciation (Depreciation) on:
Investments 3,951,992
Wrapper Agreements (4,943,878)
Realized Gain on Investment Transactions 991,886
-----------
Net Realized and Unrealized Gain (Loss) on Investments and Wrapper Agreements --
-----------
Net Increase in Net Assets from Operations $ 7,494,607
===========
</TABLE>
- ----------
* The PreservationPlus Portfolio commenced operations on October 1, 1997.
See Notes to Financial Statements on Pages 17 and 18
15
<PAGE>
- --------------------------------------------------------------------------------
BT PRESERVATIONPLUS PORTFOLIO
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
For the
period ended
September 30, 1998*
-------------------
Increase (Decrease) in Net Assets from:
Operations
Net Investment Income $ 7,494,607
Net Unrealized Appreciation on Investments 3,951,992
Net Unrealized Depreciation on Wrapper Agreements (4,943,878)
Net Realized Gain on Investments 991,886
------------
Net Increase in Net Assets from Operations 7,494,607
------------
Capital Transactions
Proceeds from Capital Invested 287,696,652
Value of Capital Withdrawn (62,639,878)
------------
Net Increase in Net Assets from Capital Transactions 225,056,774
------------
Total Increase in Net Assets 232,551,381
Net Assets
Beginning of Year --
------------
End of Year $232,551,381
============
- ----------
* The PreservationPlus Portfolio commenced operations on October 1, 1997
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
Contained below are selected ratios and supplemental data for the year indicated
for the PreservationPlus Portfolio.
For the year
ended
September 30, 1998*
-------------------
Supplemental Data and Ratios:
Net Assets, End of Period (000s omitted) $ 232,551
Ratios to Average Net Assets:
Net Investment Income 5.80%
Expenses 0.35%
Decrease Reflected in the Above Expense Ratio Due
to Absorption of Expenses by Bankers Trust 0.19%
Portfolio Turnover Rate 428%
- ----------
* The PreservationPlus Portfolio commenced operations on October 1, 1997
See Notes to Financial Statements on Pages 17 and 18
16
<PAGE>
- --------------------------------------------------------------------------------
BT PRESERVATIONPLUS PORTFOLIO
Notes to Financial Statements
- --------------------------------------------------------------------------------
Note 1--Organization and Significant Accounting Policies
A. Organization
The PreservationPlus Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940 (the "Act"), as amended, as an open-end
management investment company. The Portfolio was organized and commenced
operations on October 1, 1997 as an unincorporated trust under the laws of New
York. The Declaration of Trust permits the Board of Trustees (the "Trustees") to
issue beneficial interests in the Portfolio.
B. Security Valuation
Debt securities (other than short-term debt obligations maturing in 60 days or
less), including listed securities and securities for which price quotations are
available, will normally be valued on the basis of market valuations furnished
by a pricing service. Such market valuations may represent the last quoted price
on the securities' major trading exchange or quotes received from dealers or
market makers in the relevant securities or may be determined through the use of
matrix pricing. In matrix pricing, pricing services may use various pricing
models, involving comparable securities, historic relative price movements,
economic factors and dealer quotations. Over-the-counter securities will
normally be valued at the bid price. Short-term debt obligations and money
market securities maturing in 60 days or less are valued at amortized cost.
Securities for which market quotations are not readily available are valued by
Bankers Trust pursuant to procedures adopted by the Portfolio's Trust Board.
Wrapper Agreements generally will be equal to the difference between the Book
Value and Market Value (plus the crediting rate adjustment) on the applicable
covered assets and will either be reflected as an asset or liability of the
Portfolio. The Portfolio's Trust Board in performing its fair value
determination of the Portfolio's Wrapper Agreements considers the
creditworthiness and the ability of Wrapper Providers to pay amounts due under
the Wrapper Agreements.
C. Security Transactions and Interest Income
Security transactions are accounted for on a trade date basis. Interest income
is recorded on the accrual basis and includes amortization of premium and
discount on investments. Realized gains and losses from security transactions
are recorded on the identified cost basis. The credited rate interest represents
the actual interest earned on covered assets under the Portfolio's Wrapper
Agreements (the "agreements") plus or minus an adjustment for an amount
receivable from or payable to the wrapper provider based on fluctuation in the
market value of covered assets under the agreements.
All of the net investment income and net realized and unrealized gains and
losses (including the Wrapper Agreements) of the Portfolio are allocated pro
rata to the investors in the Portfolio on a daily basis.
D. Repurchase Agreements
The Portfolio may enter into repurchase agreements with financial institutions
deemed to be creditworthy by the Portfolio's Investment Advisor, subject to the
seller's agreement to repurchase such securities at a mutually agreed upon
price. Securities purchased subject to repurchase agreements are deposited with
the Portfolio's custodian, and pursuant to the terms of the repurchase agreement
must have an aggregate market value greater than or equal to the repurchase
price plus accrued interest at all times. If the value of the underlying
securities falls below the value of the repurchase price plus accrued interest,
the Portfolio will require the seller to deposit additional collateral by the
next business day. If the request for additional collateral is not met, or the
seller defaults on its repurchase obligation, the Portfolio maintains the right
to sell the underlying securities at market value and may claim any resulting
loss against the seller. However, in the event of default or bankruptcy by the
seller, realization and/or retention of the collateral may be subject to legal
proceedings.
E. Federal Income Taxes
The Portfolio is considered a partnership under the Internal Revenue Code.
Therefore, no federal income tax provision is necessary.
F. Other
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements. Actual results could
differ from those estimates.
Note 2--Fees and Transactions with Affiliates
The Portfolio has entered into an Administration and Services Agreement with
Bankers Trust Company ("Bankers Trust"). Under this Administration and Services
Agreement, Bankers Trust provides administrative, custody, and shareholder
services to the Portfolio in return for a fee computed daily and paid monthly at
an annual rate of 0.05% of the Portfolio's average daily net assets.
The Portfolio has entered into an Advisory Agreement with Bankers Trust. Under
this Advisory Agreement, the Portfolio pays Bankers Trust an advisory fee
computed daily and paid monthly at an annual rate of 0.35% of the Portfolio's
average daily net assets.
Bankers Trust has voluntarily undertaken to waive its fees and reimburse
expenses of the Portfolio, to the extent necessary, to limit all expenses to
0.35% of the average daily net assets of the Portfolio. Amounts owed under the
Administration and Service and Advisory Agreements at September 30, 1998
amounted to $39,674.
The Portfolio may invest in the BT Institutional Cash Management Fund (the
"Fund"), an open-end management investment company managed by Bankers Trust
Company (the "Company"). The Fund is offered as a cash management option to the
Portfolio and other accounts managed by the Company. Distributions from the Fund
to the Portfolio for the year ended September 30, 1998 amounted to $680,259.
The Portfolio is a participant with other affiliated entities in a revolving
credit facility and a discretionary demand line of credit facility collectively
(the "credit facilities") in the amounts of $50,000,000 and $100,000,000,
respectively. A commitment fee of 0.07% per annum on the average daily amount of
the available commitment is payable on a calendar quarter basis and apportioned
equally among all participants. Amounts borrowed under the credit facilities
will bear interest at a rate per annum equal to the Federal Funds Rate plus
0.45%. No amounts were drawn down or outstanding under the credit facilities as
of and for the year ended September 30, 1998.
17
<PAGE>
- --------------------------------------------------------------------------------
BT PRESERVATIONPLUS PORTFOLIO
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------
Note 3--Purchases and Sales of Investment Securities
Payables for securities purchased amounted to $109,105,807 at September 30,
1998. The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, for the year ended September 30, 1998, were
$676,244,493 and $470,495,817, respectively. For federal income tax purposes,
the tax basis of investments held at September 30, 1998, was $294,650,347. The
aggregate gross unrealized appreciation was $3,971,872, and the aggregate gross
unrealized depreciation for all investments was $33,186 as of September 30,
1998.
Note 4--Wrapper Agreements
The Portfolio will enter into Wrapper Agreements with insurance companies, banks
or other financial institutions ("Wrapper Providers") that are rated, at the
time of purchase, in one of the top two long-term rating categories by Moody's
or S&P. A wrapper agreement is a derivative instrument that is designed to
protect the portfolio from investment losses and under most circumstances permit
the Fund to maintain a constant NAV per share. There is no active trading market
for Wrapper Agreements, and none is expected to develop; therefore, they will be
considered illiquid.
A default by the issuer of a Portfolio Security or a Wrapper Provider on its
obligations might result in a decrease in the value of the Portfolio assets and,
consequently, the Shares. The Wrapper Agreements generally do not protect the
Portfolio from loss if an issuer of Portfolio Securities defaults on payments of
interest or principal. Additionally, a Fund shareholder may realize more or less
than the actual investment return on the Portfolio Securities depending upon the
timing of the shareholder's purchases and redemption of Shares, as well as those
of other shareholders.
18
<PAGE>
- --------------------------------------------------------------------------------
BT PRESERVATIONPLUS PORTFOLIO
Report of Independent Auditors
- --------------------------------------------------------------------------------
To the Shareholders and Board of Trustees
BT Pyramid Mutual Funds - BT PreservationPlus Portfolio
We have audited the accompanying statement of net assets of BT PreservationPlus
Portfoilio (the "Portfolio") as of September 30, 1998, and the related statement
of operations, statement of changes in net assets, and financial highlights for
the year then ended. These financial statements and financial highlights are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and financial highlights based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
financial highlights. Our procedures included confirmation of securities owned
as of September 30, 1998, by correspondence with the Portfolio's custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of BT
PreservationPlus Portfolio at September 30, 1998, and the results of its
operations, changes in its net assets, and the financial highlights for the year
then ended, in conformity with generally accepted accounting principles.
Ernst & Young, LLP
Philadelphia, Pennsylvania
October 30, 1998
19
<PAGE>
BT PYRAMID FUNDS
BT PRESERVATIONPLUS FUND
Investment Advisor and Administrator of the Portfolio
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
Distributor
ICC DISTRIBUTORS, INC.
P.O. Box 7558
Portland, ME 04112-9892
Custodian and Transfer Agent
BANKERS TRUST COMPANY
130 Liberty Street
New York, NY 10006
Independent Auditors
ERNST & YOUNG, LLP
Two Commerce Square
2001 Market Street
Philadelphia, PA 19103
Counsel
WILLKIE FARR & GALLAGHER
787 7th Avenue
New York, NY 10019
---------------
For information on how to invest, shareholder account information and current
price and yield information, please contact your relationship manager or the BT
Mutual Fund Service Center at (800) 730-1313. This report must be preceded or
accompanied by a current prospectus for the Fund.
---------------
BT Preservation Plus CUSIP #055847834
055847842
055847826
055847818
COMBPRPL200 (9/98)
